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I have always treated bar gossip with the same respect as investment advice from a taxi driver, but it is usually fun to listen. This week I was reliably told that Lehman Brothers was close to bidding for Cazenove and Dresdner Kleinwort Wasserstein (DrKW) was about to be floated off by its parent, Allianz, in what would be a red-hot initial public offering (IPO).

Ian Kerr

I have written about Cazenove several times, perhaps more out of respect for its illustrious past than any recent triumphs. “Caz” was a wonderful name, but its earning power is tiny and its total profits would be dwarfed by three fizzy trading desks at Goldman Sachs.

If Cazenove went public I would buy some shares just to hang the certificate on the wall in memory of the days when the firm, in effect, ruled the London stock market.

But Lehman and Cazenove? kI cannot think of a less probable combination. I am a great admirer of Lehman, whose close-knit culture has become part of Wall Street folklore.

Cazenove also has a culture, but on a different planet to Lehman’s. When Lehman acquired Neuberger Berman last year, it was a case of two peas in a pod. Cazenove would probably enjoy a brief hour of glory, but does it possess any magic ingredient to dazzle investors? As one London fund manager said: “What does Cazenove really have to IPO? Our main funds wouldn’t be allowed to buy the shares because the company is too small.”

Doesn’t that argument also apply, at least in part, to DrKW? What does DrKW have to IPO that would have punters reaching for their chequebooks? It makes about €300m a year and has been profitable for five quarters after several years of losses. But such profitability per employee pales beside its American, and most of its European, competitors.

Thanks to a substantial improvement in top management DrKW is on the mend. But is it ready to IPO? Probably not. If net earnings rise to €1bn, that would be a different story. However, also take into account that Dresdner Bank is struggling and might, therefore, be reluctant to take DrKW’s revenue streams and earnings contribution.

Many veteran market observers believe Cazenove and DrKW are still a long way from the IPO launch pad. DrKW’s time will come, but not yet. It lags a long way behind Barclays Capital, which would make a scorching IPO. As for Cazenove, kchairman David Mayhew and his senior executives should be careful about choosing a suitable bed partner. For confirmation, look no further than what happened to the socially upmarket Flemings after it was acquired by the very down-market Chase Manhattan.